State retiree health system needs major reforms

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One of the biggest fiscal challenges for cities and towns is the cost of health care benefits for retirees. The reform package proposed by Governor Patrick last week would curb some of the most egregious giveaways in the current system, which is out of whack with benefits for most private-sector retirees. It’s a significant step forward, but it also includes some concessions to state unions that would tie the hands of municipal governments. The Legislature should embrace the governor’s plan, and then improve it.

Everyone agrees that the current arrangement is too expensive in an era of more costly health care. At the local level, one need only work for 10 years — and then only in a part-time capacity — to be eligible for post-retirement health-care benefits. On average, municipalities pay about 75 percent of premiums for those benefits, which include health care plans until a retiree becomes eligible for Medicare and a so-called Medigap plan to supplement Medicare thereafter.

The governor’s plan, based on the recommendations of a commission of stakeholders, would scale the cost down, largely by increasing eligibility requirements. Employees would have to work at least 20 years and pay 50 percent of the premiums; they would have to put in 30 years before 80 percent of their premiums would be paid. Further, no one would be eligible for benefits until age 60; currently, eligibility kicks in at 55.

The administration estimates its plan would cut the state and municipal unfunded liability for retiree health care from $40 billion to about half that. However, the Massachusetts Taxpayers Foundation puts the state and local liability at about $47 billion, and estimates that the proposed changes would trim it by only about $8 billion.

To win labor support, the commission made several concessions. First, the changes would not apply to current retirees or those within five years of retirement. Second, cities and towns would be prohibited for three years from making any change in the premium split. After that, any change made could only apply to future retirees, not current ones. It’s fair to hold current and soon-to-be retirees harmless from the larger eligibility reforms the governor has proposed. But retirees shouldn’t be exempt from the smaller premium-split changes that cities and towns can now make.

In the past, the House has shown more determination than Patrick, who craves consensus — which is to say, union agreement — when it comes to reining in overly generous public-employee benefits. In this case, Speaker Robert DeLeo and his team should improve the governor’s proposal by eliminating the provision depriving municipalities of the ability to adjust the premium split for retirees. And the Senate should follow suit.